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					Filed 8/24/11
                            CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                             SECOND APPELLATE DISTRICT

                                    DIVISION THREE


BANK OF AMERICA                                       B231520
CORPORATION et al.,
                                                     (Los Angeles County
                                                     Super. Ct. No. BC409444)
        Petitioners,

        v.

SUPERIOR COURT OF
LOS ANGELES COUNTY,

        Respondent;

PAUL RONALD et al.,

        Real Parties in Interest.



        ORIGINAL PROCEEDINGS in mandate. William F. Highberger, Judge.
Petition granted.
        Bryan Cave, Douglas E. Winter, Robert E. Boone III, Keith D. Klein and
John M. Thomas for Petitioners.
        No appearance for Respondent.
        Mitchell J. Stein; Erikson M. Davis; Kenin M. Spivak, Theodore Maloney;
and Michael S. Riley for Real Parties in Interest.


                                _________________________
       Defendants and petitioners Bank of America Corporation, Countrywide Financial
Corporation, Countrywide Home Loans, Inc., Recontrust Company, N.A., and CTC Real
Estate Services (collectively, Countrywide or defendants)1 seek a writ of mandate
directing respondent superior court to vacate its order overruling Countrywide‘s demurrer
to the first cause of the operative third amended complaint (TAC), and to enter a new and
different order sustaining the demurrer to said cause of action without leave to amend.
       Plaintiffs and real parties in interest Paul Ronald, Lisa Ronald and 246 others
(collectively, plaintiffs), allege they are borrowers who obtained Countrywide-originated
residential mortgage loans. In this litigation, which is currently pending in the trial court,
plaintiffs are prosecuting a variety of claims against Countrywide. This writ petition
relates solely to plaintiffs‘ cause of action for fraudulent concealment, which is the first
cause of action of the TAC. The trial court overruled Countrywide‘s demurrer to said
cause of action and certified its ruling for writ review pursuant to Code of Civil
Procedure section 166.1 (section 166.1). Countrywide filed the instant petition for writ of
mandate and we issued an order to show cause.
       We grant Countrywide‘s petition. We conclude the plaintiffs/borrowers cannot
state a cause of action against Countrywide for fraudulent concealment of an alleged
scheme to bilk investors by selling them pooled mortgages at inflated values, the demise
of which scheme led to devastated home values across California. Due to the generalized
decline in home values which affects all homeowners (borrowers of Countrywide,
borrowers who dealt with other lenders, and homeowners who owned their homes free
and clear), there is no nexus between Countrywide‘s alleged fraudulent concealment of
its scheme to bilk investors and the diminution in value of the instant borrowers‘
properties.




1
      In 2008, Bank of America Corporation purchased Countrywide Financial
Corporation and its affiliates.
                                              2
                   FACTUAL AND PROCEDURAL BACKGROUND
       1. Pleadings.
       Plaintiffs filed this action on March 12, 2009. The operative TAC, filed
July 7, 2010, alleged in pertinent part:
       By 2005, Countrywide was the largest mortgage lender in the United States,
originating over $490 billion in loans in that year alone. Countrywide‘s founder and
CEO, Angelo Mozilo determined that Countrywide could not sustain its business
―unless it used its size and large market share in California to systematically create false
and inflated property appraisals throughout California. Countrywide then used these
false property valuations to induce Plaintiffs and other borrowers into ever-larger loans
on increasingly risky terms.‖ Mozilo knew ―these loans were unsustainable for
Countrywide and the borrowers and to a certainty would result in a crash that would
destroy the equity invested by Plaintiffs and other Countrywide borrowers.‖
       Mozilo and others at Countrywide ―hatched a plan to ‗pool‘ the foregoing
mortgages and sell the pools for inflated value. Rapidly, these two intertwined schemes
grew into a brazen plan to disregard underwriting standards and fraudulently inflate
property values . . . in order to take business from legitimate mortgage providers, and
moved on to massive securities fraud hand-in-hand with concealment from, and
deception of, Plaintiffs and other mortgagees on an unprecedented scale.‖
       Countrywide had a duty to ―disclose to each borrower, including each Plaintiff
herein, that the mortgage being offered to the Plaintiff was, in fact, part of a massive
fraud that Countrywide knew would result in the loss of the equity invested by Plaintiff in
his home and in severe impairment to Plaintiff‘s credit rating.‖ Countrywide‘s fraudulent
scheme ―destroyed California home values county-by-county and then State-wide.‖
(Italics added.)
       At the time Countrywide ―induced Plaintiffs to enter into mortgages, [it] knew
[the] scheme would lead to a liquidity crisis and grave damage to each Plaintiff‘s
property value and thereby result in each Plaintiff‘s loss of the equity such Plaintiff
invested in his house.‖ The ―unraveling of the Defendants’ fraudulent scheme has

                                              3
materially depressed the price of real estate throughout California, including the real
estate owned by Plaintiffs, resulting in the losses to Plaintiffs[.]‖ (Italics added.)
       The first cause of action for fraudulent concealment, which is the focus of this writ
petition, incorporated by reference the above allegations and further pled:
       Countrywide ―was aware, but . . . failed to disclose, that [its] business model was
unsustainable.‖ Despite Countrywide‘s awareness of the risks it was undertaking,
―Countrywide hid these risks from the borrowers, potential borrowers and investors.‖
This concealment ―was essential to [Countrywide‘s] overall plan to bilk investors, trade
on inside information and otherwise pump [up] the value of Countrywide stock.‖
       ―As a proximate result of the foregoing concealment by Defendants, California
property values have precipitously declined and continue to decline, gravely damaging
Plaintiffs by materially reducing the value of their primary residences, depriving them of
access to equity lines, second mortgages and other financings previously available based
upon ownership of a primary residence in California, in numerous instances leading to
payments in excess of the value of their properties . . . .‖2
              2. Countrywide’s demurrer.
       Countrywide demurred to the TAC in its entirety. With respect to the cause of
action for fraudulent concealment, Countrywide argued, inter alia, ―appraisals and
underwriting guidelines are tools that a lender uses to qualify borrowers for loans and
exist only for the lender‘s protection. Therefore, the borrowers in this case could not
have justifiably relied on any alleged omissions or misrepresentations regarding the



2
        In addition to the first cause of action, fraudulent concealment, the TAC set forth
the following claims: intentional misrepresentation (2nd cause of action); negligent
misrepresentation (3rd cause of action); invasion of constitutional right to privacy
(Cal. Const., art. I, § 1) (4th cause of action); violation of California Financial Information
Privacy Act (Fin. Code, § 4050 et seq.) (5th cause of action); violation of Civil Code
section 2923.5 [procedures that must be followed before holder of mortgage may issue
notice of default] (6th cause of action); violation of Civil Code section 1798.82 [requiring
disclosure to consumer of data security breach) (7th cause of action); and unfair
competition (Bus. & Prof. Code, § 17200 et seq.) (8th cause of action).
                                               4
Bank‘s appraisals and underwriting standards in deciding whether they could afford their
loans. Instead, the borrowers were required to evaluate the terms of their loan in their
loan disclosures – which they do not claim were inaccurate – and ‗rely on their own
judgment and risk assessment in deciding whether to accept the loan.‘ ‖
       Further, the ―borrowers‘ allegations regarding securitization also cannot support
their fraudulent [loan] origination causes of action. . . . [The borrowers] contend that
although the Bank may have disclosed the potential sale of the mortgages, it did not
disclose an intent to sell ‗virtually all mortgages at highly-inflated and unsustainable
values. . . . The mere fact that the Bank disclosed that it had the right to sell the
mortgages is sufficient and there is no need for the Bank to engage in a lengthy
discussion about the different permutations regarding how it may exercise that
right. . . . Moreover, the price at which the borrowers‘ loans may have been securitized
has no bearing on the borrowers‘ payment under their mortgages—to which they
voluntary assented.‖
       3. Hearing and ruling on demurrer.
       On January 11, 2011, the matter came on for hearing. At the outset, the trial court
indicated, ―the issues presented by the many plaintiffs in this case as against their current
mortgage lender and/or loan servicer are part of a larger socioeconomic problem that
confront[s] our society in California and all of the other states in this union, an issue of
great concern to the U.S. Congress, state Legislature, and the bank regulators, given that
in our banking system the banks are insured by the full faith and credit of the United
States government for all intents and purposes, so the continued solvency of the banking
industry as a whole is a matter of intense interest to the U.S. Congress as well as the
central bank.‖ (Italics added.)3
       With respect to the first cause of action for fraudulent concealment, the trial court
indicated it was inclined to overrule the demurrer. ―The first cause of


3
       We are advised that 19 nearly identical cases have been filed in the superior court
in Los Angeles and Orange counties since December 2010.
                                               5
action, . . . notwithstanding its great ambition and the multitude of plaintiffs actually
survives the demurrer, because on the question of reliance, this is a fraudulent
concealment claim, and the generalized allegations applicable to each and every
plaintiff . . . is that they never heard [anyone] telling them how wrong and inaccurate
real estate pricing had become as a result of the defendants’ conduct, which was
advanced by the alleged fraudulent concealment. And so, I don‘t believe anything there‘s
anything further on which particularity is actually required[.]‖ (Italics added.)
       The trial court observed, ―in many ways the plaintiffs are hoping to at least
theoretically create the possibility of astronomic exposure on the appearing defendants,
including the federally insured bank, Bank of America, that the question of whether or
not Perlas[4] should apply, as argued by the defendants, presents a very important
question, which should be if possible addressed by our own Court of Appeal through a
writ proceeding, certified by myself pursuant to section 166.1, as soon as a ruling on
today‘s demurrer is finalized.‖
       With respect to the fraudulent concealment claim, Countrywide‘s counsel made
two points: except for express statutory provisions, Countrywide did not owe a duty of
disclosure to the borrowers; and there was a failure by plaintiffs to allege the
nondisclosure was the cause of their damages.
       The trial court observed, ―the absence of a duty is another way of saying
immunity. But I sort of went back two paces to the more fundamental common law
principle that one can‘t engage in intentional fraud through concealment with somebody
with whom one is doing business.‖ Going back ―to sort of first principles on Prosser on
Torts or Witkin on Torts, which is as you enter into a commercial relationship you can‘t
engage in this intentional tort. And whether it is a fraudulent misrepresentation, or a
fraudulent concealment, . . . once you have a business relationship, . . . if Mozilo and his
troops are intentionally inflating the value of all or much of American real estate, in
order to generate more loans, in order to generate short-term profits and bonuses, and


4
       Perlas v. GMAC Mortgage, LLC (2010) 187 Cal.App.4th 429 (Perlas).
                                              6
they know they are doing it, but choose not to tell their customers . . . that they are being
sucked into this maw; . . . at least under my first theory of first principles [of tort] . . . that
duty might be recognized. [¶] But you may be right, that cases like Perlas . . . actually
adopt a jurisprudential view that banks should be functionally immunized in this aspect
of the relation with customers. And if that is the view of the Court of Appeal or I have
got it wrong, it would be better to know the answer to that early, because [of the] high
stakes claim in this case[.]‖ (Italics added.)
       Moving beyond duty to the element of causation, Countrywide‘s counsel argued
―we‘ve all suffered a loss in value on our homes.‖ Irrespective of whether a homeowner
obtained a loan from Countrywide, or had no relationship with Countrywide, all
homeowners had suffered a loss in equity with the collapse of the housing bubble.
Therefore, plaintiffs were incapable of alleging that Countrywide‘s nondisclosure of its
purported scheme ―is the cause of their loss in property.‖
       After hearing additional arguments by counsel, the trial court issued an order
overruling the demurrer to the first cause of action for fraudulent concealment.5
       4. Writ proceedings.
       On February 3, 2011, the trial court issued an order ―certif[ying] its ruling on
Defendants‘ Demurrer to the First Cause of Action for Fraudulent Concealment for writ
review pursuant to section 166.1[.]‖6



5
        In addition to overruling the demurrer to the first cause of action of the TAC, the
January 11, 2011 order by the trial court sets forth the following rulings with respect to
the balance of the complaint. As to the second and third causes of action, intentional and
negligent misrepresentation, the trial court sustained demurrers with leave to amend, to
enable plaintiffs to allege fraud with greater particularity. The demurrer to the fourth
cause of action was overruled. The demurrer to the fifth cause of action was sustained
without leave to amend. The demurrer to the sixth cause of action was sustained without
leave to amend as to six of the plaintiffs and otherwise was overruled. Finally, demurrers
to the seventh and eighth causes of action were overruled.
6
        Section 166.1 states in pertinent part: ―Upon the written request of any party or
his or her counsel, or at the judge‘s discretion, a judge may indicate in any interlocutory
                                                 7
         On March 11, 2011, Countrywide filed the instant petition for writ of mandate,
seeking to set aside the overruling of its demurrer to the first cause of action for
fraudulent concealment.
         This court issued an order to show cause, placing the matter on calendar.
                                     CONTENTIONS
         Countrywide contends the trial court erred in overruling the demurrer to the
fraudulent concealment claim because (1) Countrywide did not owe a duty to disclose to
plaintiffs/borrowers its alleged intent to defraud third party investors by selling
mortgages to those investors at fraudulently inflated prices; (2) plaintiffs failed to plead
any cause-in-fact nexus between Countrywide‘s concealment of its alleged scheme from
plaintiffs and the harm which plaintiffs suffered; and (3) public policy limits proximate
cause.
                                       DISCUSSION
         1. Standard of review.
         ―Because this matter comes to us on demurrer, we take the facts from plaintiff's
complaint, the allegations of which are deemed true for the limited purpose of
determining whether the plaintiff has stated a viable cause of action. [Citation.]‖
(Stevenson v. Superior Court (1997) 16 Cal.4th 880, 885.)




order a belief that there is a controlling question of law as to which there are substantial
grounds for difference of opinion, appellate resolution of which may materially advance
the conclusion of the litigation.‖

       In enacting section 166.1, the Legislature‘s intent was to ―codify a judge‘s
implicit authority to comment on an order.‖ (Sen. Rules Com., Off. of Sen. Floor
Analyses, 3d reading analysis of Assem. Bill No. 2865 (2001-2002 Reg. Sess) as
amended Aug. 14, 2002, p. 2.) ―By focusing the attention of the appellate court on the
point of law in dispute, the trial judge may encourage the appellate court to hear and
decide the question, assisting the parties and the trial court to a resolution of the entire
matter.‖ (Ibid.) Section 166.1 ―does not change existing writ procedures or create a new
level of appellate review.‖ (Ibid.)
                                              8
       2. The tort of fraudulent concealment.
       ―[T]he elements of a cause of action for fraud based on concealment are:
‗ ―(1) the defendant must have concealed or suppressed a material fact, (2) the defendant
must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must
have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff,
(4) the plaintiff must have been unaware of the fact and would not have acted as he did if
he had known of the concealed or suppressed fact, and (5) as a result of the concealment
or suppression of the fact, the plaintiff must have sustained damage. [Citation.]‖
[Citation.]‘ [Citation.]‖ (Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009)
178 Cal.App.4th 830, 850 (Kaldenbach); accord Levine v. Blue Shield of California
(2010) 189 Cal.App.4th 1117, 1126-1127.)
       There are ― ‗four circumstances in which nondisclosure or concealment may
constitute actionable fraud: (1) when the defendant is in a fiduciary relationship with the
plaintiff[7]; (2) when the defendant had exclusive knowledge of material facts not known
to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff;
and (4) when the defendant makes partial representations but also suppresses some
material facts. [Citation.]‘ [Citation.]‖ (LiMandri v. Judkins (1997) 52 Cal.App.4th 326,
336 (LiMandri).)
       3. Duty.
       The gravamen of the fraudulent concealment claim is that the defendants failed to
disclose to plaintiffs/borrowers that defendants ―knowingly pooled their secretly risky
loans into pools they sold above fair value, defrauding their investors.‖ The ―unraveling
of the Defendants’ fraudulent scheme has materially depressed the price of real estate
throughout California, including the real estate owned by Plaintiffs[.]‖ (Italics added.)




7
       Absent special circumstances, a loan transaction is at arm‘s length and there is no
fiduciary relationship between the borrower and lender. (Oaks Management Corporation
v. Superior Court (2006) 145 Cal.App.4th 453, 466; Perlas, supra, 187 Cal.App.4th at
p. 436.) Plaintiffs do not contend Countrywide owed them a fiduciary duty.
                                              9
       On the fraudulent concealment claim, we begin with the threshold question of
duty. (Kaldenbach, supra, 178 Cal.App.4th at p. 850.) We address whether Countrywide
owed a duty to disclose to the plaintiffs/borrowers its alleged fraudulent scheme to create
inflated property appraisals throughout California, and then pool its mortgages and sell
the pools to unsuspecting investors at inflated prices.
       Perlas, on which the trial court focused in its determination of duty, is not on
point. In Perlas, the borrowers alleged ―they could rely upon [the mortgage lender‘s]
knowingly false determination that they qualified for the loans as a determination by
[the lender] that they could afford the loans.‖ (Perlas, supra, 187 Cal.App.4th at p. 431.)
Perlas held the plaintiffs failed to state a cause of action against the lender for fraudulent
misrepresentation or fraudulent concealment. Perlas reasoned the lender‘s efforts to
determine the creditworthiness and ability to repay by a borrower are for the lender‘s
protection, not the borrower‘s, and borrowers rely on their own judgment and risk
assessment in deciding whether to accept a loan. (Id. at p. 436.)
       In the instant case, the plaintiffs emphasize ―[t]his lawsuit is not about
unaffordable loans,‖ and that they did not allege Countrywide ―should decide for its
borrowers whether they could afford the loans being issued.‖ Thus, plaintiffs eschew any
claim they relied on Countrywide to determine whether they could afford the loans.
Consequently, Perlas‘s holding that a lender does not owe a duty to a borrower when it
decides a borrower can afford a loan, has no bearing on the duty question in this case.8
       Rather, LiMandri, supra, 52 Cal.App.4th 326, is instructive. There, attorney
Limandri filed suit against Judkins, counsel for a lender (Security) that made a loan to
LiMandri‘s clients, asserting that Judkins, with knowledge of LiMandri‘s superior lien
rights to his client‘s settlement proceeds in underlying litigation, created a security




8
      Because plaintiffs herein do not contend they relied upon Countrywide‘s
determination that plaintiffs could afford the loans for which they had been approved, we
express no opinion as to Perlas‘s resolution of the duty question presented in that case.
                                              10
interest in those proceeds on behalf of Security and asserted it as superior to LiMandri‘s
contractual lien. (Id. at p. 341.)
       The LiMandri court held the trial court properly dismissed LiMandri‘s claim for
fraudulent nondisclosure ―on the ground Judkins owed LiMandri no duty to disclose his
intention to assert the superiority of Security‘s lien.‖ (LiMandri, supra, 52 Cal.App.4th
at p. 338.) LiMandri explained, ―the nondisclosure causes of action are further
problematic in that they essentially seek to hold Judkins liable for failing to disclose his
intention to wrongfully assert the superiority of Security‘s lien rights. Since Judkins‘s
wrongful assertion of superior lien rights on behalf of Security is the basis for LiMandri‘s
cause of action for intentional interference with prospective economic advantage,
LiMandri‘s theory, in essence, is that Judkins owed him a duty to disclose his intention to
commit an intentional tort. Although ‗inferentially, everyone has a duty to refrain from
committing intentionally tortious conduct against another‘ [citation], it does not follow
that one who intends to commit a tort owes a duty to disclose that intention to his or her
intended victim. The general duty is not to warn of the intent to commit wrongful acts,
but to refrain from committing them. We are aware of no authority supporting the
imposition of additional liability on an intentional tortfeasor for failing to disclose his or
her tortious intent before committing a tort.‖ (Id. at p. 338; accord Deteresa v. American
Broadcasting Companies, Inc. (9th Cir. 1997) 121 F.3d 460, 467-468 [even if audiotaping
and videotaping were wrongful, defendant was not liable for failing to disclose its
intention to commit those wrongful acts]; In re MRU Holdings Securities Litigation
(S.D.N.Y. 2011) 769 F.Supp.2d 500, 515 [it is ― ‗rather circular‘ to say that . . .
Defendants ‗committed fraud by concealing their intent to commit fraud‘ ‖].)
       Guided by the above, we conclude that while Countrywide had a duty to refrain
from committing fraud, it had no independent duty to disclose to its borrowers its alleged
intent to defraud its investors by selling them mortgage pools at inflated values.




                                              11
       4. Causation.
       Turning from duty to the element of causation, the inquiry is whether,
― ‗ ―as a result of the concealment or suppression of the fact, the plaintiff . . . sustained
damage.‖ ‘ ‖ (Kaldenbach, supra, 178 Cal.App.4th at p. 850.)
       Paragraph 339 of the TAC alleges: ―As a proximate result of the foregoing
concealment by Defendants, California property values have precipitously declined and
continue to decline, gravely damaging Plaintiffs by materially reducing the value of their
primary residences, depriving them of access to equity lines, second mortgages and other
financings previously available based upon ownership of a primary residence in
California, in numerous instances leading to payments in excess of the value of the their
properties, thereby resulting in payments with no consideration and often subjecting them
to reduced credit scores (increasing credit card and other borrowing costs) and reduced
credit availability.‖ (Italics added.)
       The defect in this allegation is that homeowners who did not obtain loans from
Countrywide likewise suffered a decline in property values, a decline in their home
equity, and reduced access to their home equity lines of credit. Irrespective of whether a
homeowner obtained a loan from Countrywide, or obtained a loan through another
lender, or whether a homeowner owned his or her home free and clear, all suffered a loss
of home equity due to the generalized decline in home values. That being the case, there
is no nexus between the alleged fraudulent concealment by Countrywide and the
economic harm which these plaintiffs/borrowers have suffered.
       We emphasize the limited nature of our holding. We merely conclude plaintiffs
failed to state a cause of action against Countrywide for fraudulent concealment of its
alleged scheme to ―bilk investors by selling collateralized mortgage pools at an inflated
value,‖ the demise of which led to a generalized decline in California residential property
values.




                                               12
                                      DISPOSITION
       The order to show cause is discharged. The petition for writ of mandate
is granted. Let a peremptory writ of mandate issue directing respondent superior
court to vacate its order overruling the demurrer to the first cause of action of the
third amended complaint and to enter a new and different order sustaining the
demurrer to said cause of action without leave to amend. The parties shall bear
their respective costs in this proceeding. (Cal. Rules of Court, rule 8.936(b)(1).)
       CERTIFIED FOR PUBLICATION




                                                  KLEIN, P.J.


We concur:



              CROSKEY, J.




              KITCHING, J.




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